Wednesday, October 29, 2008

Italians Evade 100 Billion Euros in 2007: US Evades $ 345 Billion

The ANNOTICO Report

 

Tax evasion in Italy amounts to a 100 million euros., whereas In the United States, the IRS estimated in 2007 that Americans owed $345 billion, or about 14% of federal revenues for FY2007. the tax gap.

 

Of course the US has more Corporate Subsidies, Tax Waivers, off Shore Havens, Tax Loop Holes, etc, to the degree that only Half of US Corporations pay ANY Taxes, and Oil Corporations with Record Tax Profits get a Bush Tax  Cut.

The Italians have long held their politicians in contempt, and are not as naive as Americans, so they are convinced that Taxes paid to  the Government are a Donation to Mainly Corrupt Thieves, so it becomes a challenge to give as little to the Politicians as Possible. 

 

 

100 Billion Euros Slip Through Taxman’s Fingers

Total annual cost of tax evasion in Italy. Thousands of scams used to dodge taxes.

The figure for 2007 was a record. Inspectors recovered a total of 6.3 billion euros in a single year from tax evaders, up 50% on 2006. There was another record in the first four months of 2008 as the tax agency clawed back 800 million euros, an increase of 24% over the previous year. It sounds like a lot but in fact it is very little, considering that according to official figures from the ministry of the economy, total annual tax evasion in Italy amounts to a 100 million euros. Naturally, the figures underestimate the reality. According to the ISTAT statistics institute, the black economy accounts for at least 20% of the countrys gross domestic product, or 280 billion euros. Other sources put the figure even higher. Whatever the truth, tax evasion in Italy is three times the level of those countries in Europe that combat the informal economy most effectively, and twice the European average. If Italy managed to make everyone pay taxes, or even to collect only half of the 100 million euros evaded, it would be a very different country.

For example, Italy could double the amount spent on research, which is lowest of all the industrialised countries, or increase every single pension by 45%. Sadly, it is likely that all this will remain a pipe dream. The scale of the phenomenon, and the incredible ingenuity expended by Italians on dodging the taxman, do not leave much room for hope. Cunning and chutzpah are the main weapons used in the battle with the taxman and over the years, Italians have applied their proverbial imagination to a range of scams, swindles and expedients that has is unrivalled anywhere else. The range is embarrassingly vast and neatly described by Roberto Ippolito in his book Evasori. Chi come quanto [Evaders. Who, How, How Much], published by Bompiani, which will be in the bookshops tomorrow. Its an anthology of tax evasion and avoidance, compiled by searching through hundreds of newspaper articles but with no attempt to draw conclusions.

In any case, there is little to be added to some of the cases Ippolito mentions. What can you say about the free mattresses given away with a magazine at a cover price of 2,000 euros, to exploit the special tax regime enjoyed by publishing and pay VAT at 4% instead of 20%? Or the social clubs that leverage their privileged tax status to act as fronts for business enterprises with an annual turnover of 800,000 euros, like the Oristano customs police social club? Italian creativity knows no bounds. When a business needs customers, it simply makes them up. At Giulianova, a mobile phone company managed to evade 26 million euros thanks to false invoices. And to look credible in the taxmans eyes the business claimed a tax rebate for a cool five million euros. This sort of brassnecked cheek is far from unusual. It goes on even in the best families.

Ippolito tells the story of a couple in San Don` di Piave who faked a gift to their daughter of two plots of land. The value was the same as the taxable capital gain, 250,000 euros. It was a shame that only a few days later, the astute young women sold the land on for the same amount without generating any capital gain or tax liability. The homemade scam was uncovered, but only because the trio deposited the cheques from the final purchasers straight into mum and dads bank account.

In Italy, its not hard to find casual workers who drive Porsches, or a 75-year-old pensioner with a declared income of 1,000 euros a month who has just ordered a 30,000-euro swimming pool, or a plumber declaring 3,000 euros a year who turns out to be pocketing 350,000. Perhaps these are isolated cases. Nevertheless, the sector studies used to make the self-employed pay taxes on the basis of presumed income tell a different story.

They report, for example, 100,000 taxpayers who claim for the purchase of capital goods but apparently do not own them. Among them are 3,329 restaurants with no kitchen or tables, 480 chemists shops without shelves, 555 laundries with no washing machines, more than 5,000 installation engineers with no pliers or screwdrivers and 360 analysis laboratories with no equipment. There are even 137 taxi drivers with no taxi. Tax inspectors are also honing their wits to staunch Italys haemorrhaging tax revenue. In Liguria, almost 10,000 taxpayers ended up in the cross-hairs of the tax authorities, which are completing checks at the moment. How were the suspects identified? Income tax returns were cross-checked against customer databases gleaned from 33 travel agencies and the regions auction houses, flying clubs and beauty centres.

The not-so-indigent poor can be unmasked by blanket checks, like the one carried out by the Liguria tax agency, but targeted investigations offer another option. A check of 250 doctors in Sicily revealed that 100 were guilty of tax irregularities. The customs police also regularly makes similar checks on receipts issued by shops but there was little to be done in the case of the Sardinian pastryshop owner who always gave his customers a receipt. He couldnt be faulted except for one tiny detail: he had omitted to present a tax return for fully seven years, evading half a million euros in the process. It has to be said that the likelihood of a visit from the taxman is small. Some studies say that tax evaders run a serious risk of inspection once every sixteen years. Nor is there any social stigma attached to tax evasion. This was shown again last spring, when the authorities published details of every Italians tax returns on the web. The information was immediately blacked out to protect confidentiality.

In other words, there is no civic conscience to aid the taxman. The inspection machinery is making enormous progress but it still cant keep up with evasion. We only have to look at the legal backlog. Even when the taxman wins in court, it takes an inordinate amount of time to get the money. A final verdict in tax-related cases emerges after an average of four years and when the figures are totted up, they are pitiful. Out of 44 billion euros of evaded taxes, the authorities actually managed to recover only 7.3%. Or to put it another way, 92.7% of evaders who are caught still get away with it.

Mario Sensini

 

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